Commissioner's Opinion No. 73 / 21F

State of California Department of Corporations

Brian R. Van Camp, Commissioner
In reply refer to: File No. _____

This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.

Mr. W. L. Pemberton
Attorney at Law
Frazier, Dame, Doherty,
Parrish & Hanawalt
200 South "A" Street
Oxnard, CA 93030

Dear Mr. Pemberton:

The request for an interpretive opinion contained in your letter dated October 24, 1972, has been considered by the Commissioner. Your letter raises the question whether the agreements between College Advisory Services, Inc., a California corporation ("Advisory"), and persons referred to therein and hereinbelow as "District Agents", are franchises within the definition of Section 31005, and subject to the provisions of the Franchise Investment Law. On the assumptions stated below, this question is answered in the negative.

We understand that, pursuant to the agreement, the District Agent is granted the right to sell insurance for various insurers, selected by Advisory and for whom Advisory is a general agent, to students in specified colleges and universities within a specified territory. The District Agent is appointed a life agent by insurer companies selected by Advisory, which appointment is a condition precedent to all other terms of the agreement.

The agreement provides that the District Agent may not sell, solicit or promote programs of insurance within the educational institutions listed in the agreement other than those programs selected by Advisory, unless expressly waived in writing. All applications for insurance must be submitted by the District Agent to Advisory which will process them at their expense. Premiums and other moneys collected by the District Agent will also be transmitted to Advisory for its handling and disposition.

The agreement further provides that the District Agent will provide facilities necessary to furnish insurance sales and service, and will permit authorized representatives of Advisory reasonable inspection of such facilities and the review of all records. In addition, the District Agent must employ at least one student sales person for each 1,000 student population at each institution within 18 months after the date of the agreement, as well as required student supervisory personnel.

Within 18 months after date of the agreement, the District Agent agrees to make a minimum of one sale each week for each 1,000 student population at each institution. Advisory will receive all commissions earned by the District Agent from the insurer and pay them over to the District Agent who agrees to promptly execute any assignments, transfers and other documents necessary to implement this requirement. The District Agent pays 9% of said commissions to the student supervisory agent and 42% of said commissions to the student sales personnel selling the policies upon which commissions are earned. In return for Advisory's services, the District Agents shall pay to Advisory for deposit in its trust account a specified sum which will be paid over to Advisory when certain events occur.

Advisory agrees to provide the District Agent with all necessary forms, advertising brochures and literature normally provided to appointed Agents; provide a full training program for the District Agent and his student agents for a minimum of the first three institutions in the district; maintain good and amicable relations with the administration and personnel of all institutions; and provide to the District Agents skilled and experienced consultants on a continuing basis for the rendering of assistance and counseling.

Section 31005 of the Franchise Investment Law defines "franchise" to include an agreement, either oral or written, between two or more persons by which a franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, the operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's commercial symbol, such as its trade name or trademark, and the franchisee is required to pay a franchise fee.

On the assumption that none of the forms, advertising brochures or literature which Advisory agrees to provide the District Agent for delivery to customers will contain any commercial symbol of Advisory, that the agents do not use any sign or identification mark of Advisory in dealing with their customers, and that no advertising is done which uses the Advisory name or symbol and which relates to the operations of the District Agents, it is our opinion that the agreements between Advisory and the District Agent are not "franchises" within the definition of Section 31005 and are not subject to the provisions of the Franchise Investment Law. Otherwise, for the reasons stated below it is our opinion that the agreements are "franchises", and are subject to the provisions of the Franchise Investment Law.

You have suggested that the agreements may not be "franchises" because of the lack of control over the District Agent by Advisory. We do not concur in this opinion. Rather, it is our opinion that the provisions in the agreements with respect to the limitations on territory and the insurance programs, the forwarding of applications and commissions to Advisory, the payments required to be made to student sales personnel, and the training and consulting offered by Advisory are characteristic of a "prescribed" marketing plan system. Furthermore the fees to be paid to Advisory-clearly constitute a "franchise fee" under Section 31005(c).

We also do not concur that the necessity for each party to secure Life Agent licenses from the Department of Insurance nor the fact that policies will be issued by a third party and not by Advisory is significant in determining whether or not the agreements are "franchises".

We should point out that the jurisdiction of the Insurance Commissioner over the activities of Advisory, as a general agent, is separate and different from the discipline imposed by the Franchise Investment Law, which according to Section 31001, is designed to provide prospective franchisees with information enabling them to make an intelligent decision regarding franchises being offered and to accomplish other purposes not related to the regulation of the insurance business.

Dated: San Francisco, California
May 21, 1973

By order of
Commissioner of Corporations

By __________________
Supervising Corporations Counsel
Office of Policy